Is A Recent Bankruptcy Or Consumer Proposal A Barrier To Obtaining A Private Mortgage?
The positive point is that one can get a mortgage even after the recent bankruptcy or consumer proposal. Although the door might have closed on the traditional lenders (big banks and others), there is another route to take as a borrower with bruised credit: a private mortgage lender.
Life doesn't always go as planned. Unexpected loss of a job, illness or business recession can result in insurmountable debts. Bankruptcy and consumer proposal look like the only way out since many Canadians are led to this situation to regain control of their financial situation. But then, what do you do when you are willing to take the next step and decide to purchase a home or refinance one, having suffered such financial misfortunes?
Understanding the Basics: Bankruptcy vs. Consumer Proposal
Before diving into mortgage solutions, it’s important to understand the difference between these two financial terms:
Unsecured debt: The majority of your unsecured debt is discharged through the legal process of bankruptcy. It remains on your credit report for up to seven years (or longer in certain situations), though, and hurts your credit score.
Consumer Proposal: This is a bankruptcy alternative. When a person and the creditors have a legally binding agreement to pay back a portion of your debt over a maximum of five years. It still has an impact on your credit profile, but not as much as bankruptcy.
It may be more difficult to get approved for a conventional mortgage in either case. However, there is still hope.
Why Private Mortgages Are an Option?
Private lenders are typically individuals or small investment firms who focus more on property equity and less on your credit score or income history. This makes private mortgages a practical solution for borrowers emerging from financial hardship.
Here’s why private mortgages are attractive in this scenario:
Flexible credit requirements: Your recent bankruptcy or consumer proposal won’t necessarily disqualify you
Quick approval: Private mortgages are often processed faster than traditional loans
Short-term relief: These mortgages are usually offered on a one-to-three-year term, giving you time to rebuild your credit.
Keep in mind, however, that interest rates and fees tend to be higher than with institutional mortgages due to the increased risk.
What Do Private Lenders Look At?
While your credit score may still be low, private lenders evaluate several other factors:
Equity or down payment: The more equity you have (or the larger your down payment), the less risky you appear to a private lender. Typically, they want to see at least 20-25% equity in the property.
Property location and condition: A well-maintained property in a good area increases your chances of approval.
Exit strategy: Lenders want to know how you will repay or refinance the mortgage. A plan to switch to a traditional lender after improving your credit is usually acceptable.
When Can You Apply After Filing for Bankruptcy or Getting a Proposal?
Technically, you can apply for a private mortgage immediately after discharge from bankruptcy or after completing your consumer proposal. Some lenders may even consider your application during the proposal period, though this is less common.
That said, your options will improve if:
You have been discharged for at least 6 to 12 months
You have started rebuilding credit (e.g secured credit cards or small personal loans)
You have stable income and supporting documentation
Why Work with a Mortgage Broker?
It can be difficult to navigate the private mortgage market, particularly if you have experienced consumer proposals or bankruptcy. This is where a mortgage broker’s knowledge is extremely helpful.
If you are in Ontario, a mortgage broker London Ontario can connect you with private lenders who are open to working with clients with damaged credit.
Brokers understand lender requirements and can help:
Assess your financial situation
Present your application in the best light
Negotiate more favourable terms and rates
Whether you are buying a new home or refinancing, partnering with the right broker can make all the difference.
Rebuilding for the Future
Getting a private mortgage is not the end goal- it’s a stepping stone. The idea is to rebuild your credit and refinance into a traditional mortgage within a few years. Here are a few tips to accelerate your recovery:
Make all mortgage payments on time
Avoid new consumer debt
Keep credit utilisation low
Maintain steady employment
Monitor your credit report for errors or improvements
The better your credit score, the more options you will have when the private mortgage term ends.
Final Thoughts
If you just went bankrupt or filed a consumer proposal, you may feel like you've suffered a significant setback and that you won't be able to buy a home or improve your financial situation. Mortgaging privately is a possible solution for anyone ready to work towards rising again.
If you are in Southwest Ontario, trying to get a mortgage broker Woodstock Ontario can help access the right lender, plan an appropriate loan and design a long-term financial stability plan.
You have already made the first steps on a new start. Today, proper advice as well as proper strategising can take you one step further towards your lifelong dream of owning your home-even after bankruptcy.
